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There Are No Small Roles...

By Colin Briskman

Winter 2017
C-Suite: An Equilar Publication

CEO pay is a hot-button issue that gets a lot of attention, and it’s easy to compare since every company is required to report what its top executive earns each year in public filings. For other roles in the C-suite, however, it’s inconsistent as to whether an executive will be included among the top five highest-paid employees listed in the proxy statement, and as a result comparison and benchmarking is murkier.

The top legal and HR roles—usually the general counsel (GC) and chief human resources officer (CHRO)—have seen expanded responsibilities in recent years as they bring more value to the executive team and the boardroom. Equilar delved into pay trends for these two roles, enlisting commentary from executive search firms Allegis Partners and BarkerGilmore that specialize in placing HR and legal/compliance executives, respectively. The results show two executive roles expanding in terms of visibility, especially at larger companies, which have led to notable changes to their pay structures tilting toward more long-term incentives.

“Today’s HR leaders possess a broader and deeper skill set than was expected or seen 10 years ago,” said Mike Bergen, managing partner, Allegis Partners U.S. and global practice leader, Human Resources. “The most effective CHROs have a strong general management orientation and approach their roles and responsibilities from a more strategic bottom-line oriented framework.”

By tying compensation levels to company performance outcomes, boards are acknowledging the contributions of top HR executives to a company’s broad business goals. It is worth noting that these goals seem to place overall company performance at the forefront, as reflected by the prevalence of performance metrics included in long-term incentive plans. Relative total shareholder return (TSR) was the most commonly featured metric, used by 29.8% of companies, consistent with an industry-wide governance focus of aligning executive interests with those of shareholders. And beyond relative TSR, all of the most common metrics were notably based on company financial results, and not HR-specific, non-financial achievements. Following relative TSR, the most commonly utilized LTIP performance metrics were EPS (15.4%), ROC/ROIC (13.7%) and revenue (11.4%) (Graph 3).

“CHROs should no longer be compensated by traditional measures—the number of employees, composition of the workforce, size of the company—but rather by the complexity of the organization and the challenges it is facing,” said Bergen. “This shift has resulted in a need for a CHRO that has the agility to execute in this type of environment—a CHRO who can look at both the competitive and global landscape and understand how these changes will affect human capital requirements and adjust accordingly, rapidly.”